Orbcomm’s coverage map with OG2 satellites in place. Photo: Orbcomm

[Via Satellite 07-21-2014] Orbcomm’s long-awaited launch of second-generation satellites (OG2) has cast the company in a positive light by several leading analysts. On July 14, SpaceX’s Falcon 9 vehicle carried six OG2 spacecraft into Low Earth Orbit, patching a hole that developed in the original 25-satellite OG1 constellation. With the first launch complete and the next 11 ready for launch by the end of 2014, Orbcomm is positioned to take advantage of key opportunities in the Machine-to-Machine (M2M) business.

“With the current OG1 satellites consisting of mid-1990s technologies, the latest OG2 satellites offer Orbcomm a generational leap in technological capabilities,” wrote Mike Walkley managing director and senior equity analyst at Canaccord Genuity, in a research note. “In fact, the newer OG2 satellites should offer 12 times higher capacity versus existing OG1 satellites, allowing for quicker services and higher data rates while also allowing for larger message sizes.”

Built by Sierra Nevada Corporation (SNC), with Boeing manufacturing the payloads, OG2 satellites are much more capable than their predecessors. Several satellites in OG1 drifted out of their original orbits, and without enough fuel, maneuvering attempts were not able to reestablish order. According to Orbcomm CEO Marc Eisenberg, the new spacecraft carry significantly more fuel to avoid repeating this situation. Now in orbit, the six new satellites both restore lost revenue opportunities and create new ones.

“Although not explicitly reflected in our model, we estimate that ‘filling the hole’ could result in $4 to 6 million of incremental (annualized) revenues once Orbcomm restores the ability to capture data 24 hours/day,” wrote Chris Quilty, senior vice president of equity research at Raymond James & Associates, in a research note.

Additionally, the constellation upgrade includes several network enhancements that improve service. Higher gain, for example, means customers can use smaller, more energy-efficient communicators, and the higher altitude of the satellites enables larger messages. Also, OG2 satellites have six times the data access and double the transmission rates of the company’s earlier satellites. In sum, one OG2 satellite is equivalent to six OG1.

Orbcomm is performing in-orbit evaluation with SNC, and expects to begin full commercial service within 60 days of the launch. Jim McIlree, CFA at Chardan Capital Markets expects the new satellites will help Orbcomm to profit from recent deals and the March 2014 acquisition of Euroscan.

“Beginning Q2 Orbcomm will also benefit from significant new customer deployments,” McIlree wrote in a research note. “The acquisition of Euroscan adds about $11 million revenue this year, the Doosan deployment about $3 million in hardware revenue beginning in Q2 and the Hub Group deployment adding $4.5 million in hardware revenue beginning in Q3.”

Analysts identified Orbcomm’s Automatic Identification System (AIS) upgrades as another top opportunity. The company currently has two dedicated microsatellites in orbit, but each OG2 satellite includes an AIS receiver for near real-time ship location and identification reporting. Orbcomm reported $3.1 million in AIS revenue for 2013, which Quilty said could rise to $10 to $12 million. Walkley believes it could go even higher.

“We believe the AIS business could achieve a $6 million to $7 million annual run-rate in the next few months following the first launch today with these six OG2 satellites … once all 17 OG2 satellites are launched and functional, providing 24 hours a day of real-time ship tracking functionality, Orbcomm’s AIS business could achieve $10 million to $15 million in annual revenue longer-term versus the current $3.5 to $4 million current rate while retaining a cost structure of $2 million, or comparable to current levels,” wrote Walkley.

When the remaining 11 satellites will launch remains a subject of debate. McIlree reported that the delays from the first launch will likely result in an estimate reduction of roughly $1 million in revenue. Walkley expects the launch to occur this year, while Quilty expects it to slip to 2015. Though SpaceX has struggled recently with launch delays, what is agreed is that with the first six OG2 satellites in orbit, Orbcomm is a much stronger company than it was before.